Sunday, November 30, 2008

This is an important post and a headsup for all. Venezuela has proposed a new law that is likely to see passage in its parliament in March 2009. It is a broadstroke law that seems logical enough at first reading, but effectively gives the national government the right to ban any organization that it thinks is threatening the state.

I really don't know how dangerous a law can be for the state of democracy than this. Here's my translation of the article in question, recently published as a proposed law in the state gazette. Under my translation you'll find the Spanish original, because this kind of thing is open to linguistic interpretation and it's best that any Spanish speaker sees the exact language used (though I do believe my translation to be accurate).

Article 96: Dissolution for attacks against public order and other causes. The Public Ministry may seek via the judiciary the dissolution of any association whose activities or ends are or result in being contrary to the public order, to its good custom, to national sovereignty, to state security or to the international principle of non-interference in internal affairs. ...At any time during the process the judge may dictate cautionary measures that totally or partially suspend the activities of the association, or may designate an intervenor for the same.

This is serious stuff, people. It basically gives the right to the state to ban any organization, NGO, international assocation or local association it thinks is being a nuisance "to the public order" or similar. Any foreign body seen "interfering" is out. All it needs to do is grab a judge, get a signature and the opposition voice is immediately closed down. No appeals, no warning, nothing. BAM! closed. Here's a Spanish language link to an organization that, fortunately, has already noted the danger this law implies.

I find it incredible that nothing has been said about this proposed law already. This is a blatant contravention of democratic free speech and may even infringe on basic human rights. Those opposed to this law have three or four months to organize themselves and get the word out. THIS LAW CANNOT BE ALLOWED ON TO THE STATUTE. It's opening the door to a police state like no other. Please contact any and all political groups you can think of and stop this clampdown on free speech from happening.

Oh, by the way: all the above is 100% true except for one small detail; it's Peru proposing this law, not Venezuela. Now you know why you've heard nothing about it, because the bullshit hypocritical press that fill your head with crap 24 hours a day would never pick up on a story like this from a supposedly friendly nation like Peru, but my how they'd squeal if it were really Venezuela.UPDATE: I've been asked for more links to this story in other media, so here are four. There are plenty more if you look for yourself. You'll note they're all in Spanish. And the next person who writes to me and says that "if it's not being reported in English then it's probably no big deal anyway" gets a shaman hex on their tush, ok? Dumbasses like that shouldn't be spending time away from World Of Warcraft to read blogs like this.

A mighty surprise this morning. Some dude at the Buffalo News called Newton Garver has written this note on Bolivia under Evo Morales, the US role in the destabilization plan of the half moon states, the eventual Morales victory and the state of play today.

Newton has obviously done plenty of homework on this, as it's pretty darned accurate (bar the mis-spelling of Oruro, but that's very easily forgiven) and really is a very good potted history of the country since Evo came to power. Refreshing to see some accurate journalism on Bolivia from the pen of a US citizen. Go have a read yourself...here's the link again.

In Bolivia this morning there's an event going on that that's sweetly symbolic. Plan 3,000 is the working class enclave that's home to many Evo supporters in otherwise hostile Santa Cruz. The people there are sick of the way white racist scum continue to try and lord it over them and so they're fighting back...with honey.

Eduardo Loayza is director of Radio Integración (yeah you got it, Radio Integration) and from 8am to 3pm today, November 30th 2008, anyone who turns up at the door of the radio station will be "vaccinated against racism" with a spoonful of honey. Here follows the words of Loayza, because his words are better than mine on this subject (translation; Otto guilty as charged):

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"(This is a) symbolic act that is also interesting and curious. For the first time there is a vaccination with a spoonful of honey against racism in Santa Cruz and it is taking place in Plan 3,000. This dosage will protect people from all racist discourse, from all violent attitudes, it will sweeten the soul and the spirit, the person will live longer and will respect others.

We have lived through very difficult times in September when institutions were violently assaulted. Every day the media brought us more violence. Messages charged with hate poison our families and our children, every day they poison the soul. We want to say "enough!" to all this. It is a rejection in a different way; not answering (violence with) violence, but trying to reply with sweetness. This is why we are going to use honey as the antidote to sweeten the spirit and soul of many people."

Each person will receive a certificate of vaccination that says, amongst other things, "vaccinate once a year. With this vaccine you will respect others and their opinions. You will obtain spiritual peace and live longer. With this vaccine you are protected from the "civics and unionists" (ottonote; main racist organizations in Santa Cruz) and from any racist or discriminatory discourse."

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Otto sez: Eduardo Loayza totally but totally rules. Yay, yay and three times YAY for the dude. Make love not war.

Discover ten strategies smart companies deploy to recession-proof their business, including how to curb spending, cut non-payroll costs, and use the downturn to your advantage.

When the economic outlook is good, most executives focus on growing sales. It's only natural. But when the economy slows and times get tough, the focus inevitably shifts. Most executives turn inward to reassess business operations, as they face hard choices on how to manage the company.

As businesses struggle to survive a downturn, leaders generally behave in one of three ways:

"the ostrich" - preserve the status quo, and just hope for the best

"the bull in the china shop" - blindly cut expenses across the board

"the fox" - use the downturn to make your business more effective so when growth returns you'll be in a stronger competitive position

Coupa encourages leaders to behave "like a fox." Instead of viewing a recession through fearful eyes, use it as a means to pounce on emerging trends – and to get lean, mean, and in position to crush your competition as economic conditions improve.

The Mex Files has spotted the obvious fault in Peru's President Twobreakfasts' bright idea to haul over a bunch of Mexican police officers to help their fight against drug traffickers. Over 50% of Mexican police officers are officially labelled "not recommended" by their own government! But this hasn't gone un-noticed in Peru either, and Peru's ex-Veep Carlos Basombrío wins this week's toppy top quote award. It is a little harsh on Evo's crew, but all the same it must be given a wider audience:

Y'know, Twobreakfasts has a reputation of being worldly smart and the bearer of wise saws and modern instances*. It's at times like these he lets down his image and shows himself to be just as big a dick as the rest of us.

Go have a read of Lucas's latest post linked right here on the bonds market over at his site, 'Trend And Value'. It's intelligent comment but (and I dunno how he did it) more importantly he's made one of the world's driest subjects seriously funny.

Recommended to everyone, interested in bonds or not. 100% right about Minyanville, Lucas.

On October 20th 2008, Wellington West's analyst Paolo Lostritto sang the praises of Novagold (NG) in a report for clients. Canada's National Post picked up on the Lostritto call and published these two reports on consecutive days. We get to hear how NG's Rock Creek plant is now generating cash flow and how costs will drop and how the revolving credit line looks good and how the company will generate $900m in EBITDA earnings in 2016. The stock was trading around $4 at the time, and Lostritto decided to slap a $7 target on the stock.

Was this the most incompetent analyst's call of 2008? Quite possibly. Some points:

Lostritto's report came out the exact same day that company insider Greg Johnson started selling his shares. The precise, same day! I sincerely hope that's a coincidence for Paolo's sake. I mean, do these people know each other, and if so when did they last meet or talk on the phone? It'd be nice to hear about the OSC chasing up such things, but they're surely too busy with their "state of the art market tracking programs that detect any erroneous trade patterns immediately". If it weren't true it'd be funny, people.

Rock Creek has never generated cash flow. It had serious plant issues from the beginning of its commissioning phase, something that Lostritto decided not to mention.

This was almost certainly because Lostritto simply didn't know. It is obviously too much bother for an overpaid senior mining analyst to go out and visit a mineworks before writing on it. If Lostritto had bothered getting on a plane and visiting the mine he'd certainly have seen red flags everywhere.

He'd also have had chance to talk to local environment officers, the same people that were mentioned in NG's press release on November 24th and that wanted much more compliance from the company on several regulations. But he didn't. So he never knew. So this game-changing fact wasn't mentioned in his note to clients that was then disseminated to a wider public.

It's quite incredible how Lostritto claims to be able to forecast Novagold's earnings for the year 2016 when he doesn't have the first clue about the state of the company just one month later! Lostritto obviously realizes how much he screwed up, because in a classic example of closing the door after the horse has bolted, on November 25th (the day after the big drop in NG)he cut his price target from $7 to $1. Subtle difference, no?

Lostritto has been with Wellington West since April 2008. Before that he worked at Scotia and TD Sec for an aggregate of 11 years. He's "senior mining analyst" at WW, (along with Catherine Gignac, remembered with mirth as the serial Crystallex pumper for so many years) so only the good Lord knows how bad the junior analysts there must be.

PS: On the subject of bad analysis, here's a link that shows just how stupid GATA must be feeling right now. Not only did they urge their members to reject Barrick's $17 bid for Novagold back in 2006, the list of reasons they give shows how little these people really know about gold mining. A little knowledge is a dangerous thing, especially when it comes from a shrill voice.

UPDATE: From regular reader "PL": "Otto, you're being a bit unfair here. They're all bad*, not just Lostritto and Wellington".

*that's not the exact phrase used by PL, but for the sake of cleanliness the change was made

Yep, it's that 22nd October post again, reposted because I've yet to hear a single argument that makes sense against it. The dollar is still strong, and commodities are still being beaten up so the way the story is unfurling also backs up my thoughts here.

Just to be as clear as possible: THERE IS NO REASON TO EXPECT THE IMMINENT COLLAPSE OF THE DOLLAR. Remember what JM Keynes said about irrational markets and stop listening to the "we're all gonna die" crowd.

I just received another one of those "It's mystifying how gold and silver have sold off" mails this afternoon. So let's put some broadstroke ideas out on the blog (even though this isn't really LatAm material). It's really pretty simple. It's not about gold, silver or any other commodity, it's about the US Dollar. In simple bullet-point form:

1) Under normal circumstances, any country faced with recession needs its currency to devalue relative to others to make its country, products, goods, services etc competitive in the world market, therefore grow out of recession. It's the typical cycle....no brain surgery needed.

2) When its currency drops, it also puts up a de-facto imports restriction (i.e. locally produced goods and services become more attractive than more expensive items imported from overseas). As an example of the flip-side, Venezuela is the classic overvalued currency at the moment and its internal industry suffers as a consequence.

3) However the country in question this time is the USA. Firstly it is a net importer on a vast scale. Secondly its exports tends to be cutting edge sectors in tech, biotech, pharma and finance that hold their competitive edge at whatever dollar ticket price.

4) Therefore it is perhaps...repeat perhaps...unnecessary for the dollar to go through its weak phase to bring the country out of recession.

5) Meanwhile, the USA is the implicit "world leader" and does not want to lose that position. If its currency weakened sufficiently it would mean that:

net exporting countries would look for new markets more vigorously

commodities prices would revalue in dollar terms and bring more wealth to the net exporters and imply less wealth for the net importers (eg W Europe, Japan, USA)

Or put simply: If the current "leaders of the world" (for want of a better phrase) make a concerted effort to keep the dollar strong, they will not lose their place as the most important nation(s) on earth.

As a by-product, the economies of the traditional net exporting nations (for example Peru) and the commodities in which they deal (for example silver) are suppressed.

Conclusion: It seems to me that the USA has two ways of going through its recession. It can either take the logical/natural (in economics terms at least) road and pass through its recessive phase with a weakened currency. Or it can pass through recession with a strong currency. With a weak currency the rest of the world is less affected but the after effect is a less influential USA on the world stage. With a strong currency the USA drags the rest of the world into its recession, but the after effect is that it remains the top dog as people will continue to want to sell plastic dolls and things to its market and will be actively hoping that the USA improves as quickly as possible (so that its most profitable market is quickly restored).

Therefore, the USA is doing everything in its power to maintain a strong dollar, because it doesn't care so much about the whole world suffering as long as it remains the world's most important once the recession is finished. It will probably be encouraged in this effort by the other main industrialized countries that will also benefit from status quo. I repeat; the USA is and will continue to base its whole plan around one thing; "keep the dollar as strong as possible". It is the number one basic element of all its crisis planning.

UPDATE: I'm writing an update on this post at 7:41am this next morning because I'm already fed up about having to multi-answer the same counter-argument via mail. Yes, there's all that carry-trade thing, isn't there? But if you think that explains things then you also say that once the carry trade phenomenon is done there will be an equal and opposite downside to the dollar. Ok, that may happen, but it ain't necessarily so, either. What I'm proposing here is the carry trade explanation puts the cart before the horse. It's not the cause, but the effect. It's how it's happening, but not why.

When the dollar returns to USD72, write me and tell me how wrong I was. Until then, don't you think that all experts saying exactly the same thing at exactly the same time is a little suspicious, especially given those same experts' recent track record in understanding world finances?

UPDATE 2: This is most definitely the final update on this issue. Instead of getting on with my job the e-mail exchanges have continued for the last two hours with several people. I can distill my position in those mail exchanges into the following:

I just don't buy all the "it's carry trade" chorus. It fits, yes. But it's also the new chorus coming from a bunch of people who have been scrambling behind the curve for weeks, months or even years; why should I or anyone else blindly accept they should suddenly be ahead of the curve with this explanation? The carry trade explanation is choosing yet another after-the-fact scenario that fits. What I'm proposing is an a priori scenario that also fits the evidence we see around us.

I repeat the basics here;

The USA will benefit from a strong dollar policy going fwd.

If the dollar drops to sub 78USD (or so) then I'm wrong, it was pure carry trade and there is nobody at the helm of this dollar move.

Whether by accident or design, the current dollar strength will keep the USA and the industrialized nations in the box seat and will suppress the net exporting nations' economies.

I'm now going to crawl back under my stone and stick to all things LatAm, as mentioning to N. American readers that they might be wrong about their own financial analyses (after all the recent evidence too!) seems to rile too much from an outsider. I never mind about being proved wrong on these kind of things, but I'm always surprised about how religious other people get in defending hastily put together theories and daren't even think about any other logical alternatives.

Friday, November 28, 2008

We lost one of the good ones today. Darwinia Gallichio was one of the Madres/Abuelas de la Plaza de Mayo (Rosario branch), the 'Mothers of the Disappeared' who had the courage to stand up to a military dictatorship. Her daughter, son in law and seven month old grand-daughter were kidnapped by Argentine Federal police in 1977. The efforts of Darwinia and others like her eventually made international headlines and helped to bring down a government that had 'disappeared' over 30,000 people that dared oppose it.

Darwinia lost her daughter and son in law, but found baby Ximena after years of effort. Eventually she gained custody of the child. Ximena is now 32 years old and studying to be a veterinary surgeon in a Buenos Aires university. Darwinia was famous enough in her home city of Rosario to be known simply as 'Gallichio', and was awarded the equivalent of freedom of the city for her non-stop efforts to protect the human rights of others.

Hearts'n'minds, Chinese style. Peru state radio reports that Chinalco has begun an information campaign in the town of Morococha about its enormoous copper project to be built next door as of next year. Otto prefers this to the normal mushroom politics method of so many world miners.

Disappointingly for some, Ecuador and Brazil are not about to stop doing deals with each other. Otto is totally unsurprised and laughs in the face of the ignorant (e.g. Walter Molano).

Evo says relations with the USA will be better when The Hawaiian takes charge. Evo therefore wins this week's "No Shit Sherlock" award, as bar direct napalm attacks from B-52s it's tough to imagine how they could be any worse.

Jaguar (JAG) up 10% and Otto took profits and lightened. Now down to a small position in JAG and th-th-th-th-th-that's all folks. Señor Cash strikes again.

There's nothing really doing outside of the manic C and today's a light volume day. Everyone at the stores trampling over sales assistants, it seems. Grupo Galicia (GGAL) up 17% for its own merry reasons, all on light volume. Bargain hunters exist in Argentina, too.

The copper sisters PCU and FCX both down 5% or so, but anything less than a double-digit move either way hardly raises an eyebrow these days.

Dia Bras (DIB.v) at $0.105 has done 1.2m share volume today. Note the recent press releases from this company...all very intriguing. Otto knows a couple of things here that other people don't know and this one is now on my radar.

Cosan (CZZ) back over $3. This stock offers some great value as long as the corp bonds market doesn't explode on us. DYODD, but i like this stock over the next three months.

Today Chile's stats office published its monthly update. As Otto knows all the tricks and how to navigate LatAm government bureau websites, you can read it yourself by clicking this link(it's a PDF and quite big, so have patience).

As usual there's a lot of good macro info on board, but Chile's lifeblood export of copper (that, depending on pricings, accounts for between 50% and 60% of everything it sells to other countries) has suffered a notable setback in recent times and is a fair snapshot of the country right now. This simple little table sums up the problem:

Chile and Copper

Oct-07

Oct-08

%Difference

Cu production

484,741MT

450,731MT

-7%

Cu Price/lb

$3.20*

$2.23

-36.60%

Est Cu Revenues

U$3.42Bn

U$2.22Bn

-35%

*LME estimate

$1.2Bn in lost revenues for a single product is not funny in anyone's language. And note that copper prices for October averaged $2.23/lb: when October finished copper spot was at $1.81/lb. spot has sunk further since then and we can expect at least 20% lower prices for the month of November. But the good things we can say about Chile are:

1) At least we can trust their statistics. Along with Brazil, Chile has a decent reputation for not trying to spin things and massage official numbers.

3) The gov't has started to help out. For example, this week the Bachelet admin announced an $18m fund o help small copper producers that will compensate the little guys and give them at least $1.99/lb for any Lb of copper they sell. This isn't some $200Bn stimulus package, of course, but it does show the gov't is aware of sector issues and is willing to help.

4) etc

Chile is a strange country, a real Curate's Egg, in fact. But when it comes to business and mining they've always been head and shoulders above the rest of the continent. If any country can get through this downturn relatively unscathed, it's Chile.

1) Check outthe November 24st press release that mentions when things were seen to be going wrong at Rock Creek. Here's the relevant detail from the PR, and note how "mid October" exactly matches the time when Johnson started selling his shares.

The Rock Creek gold mine received regulatory authorizations and began commissioning start-up in September 2008. NovaGold was required to complete a number of additional environmental and operational tasks in the following weeks and months to ensure compliance with environmental requirements for the mine. Complications have arisen in meeting these regulatory requirements and the federal and state regulators have provided notice that certain conditions in the previously granted permits have not been fully met. Though the Company continues to work with state and federal regulators to resolve these matters, if such issues are not addressed to the satisfaction to the regulators, NovaGold's subsidiary could face financial penalties or have additional mitigation or monitoring requirements imposed. The Rock Creek mine has experienced unanticipated mechanical problems including an electrical failure with the milling circuit and the Company has ongoing concerns with the efficiency of the process and recovery circuit. These issues have been compounded by the effects of extreme arctic weather conditions experienced in Nome, Alaska. In mid October, NovaGold foresaw cash flow in 2009 from the Rock Creek mine of over C$25 million at the then prevailing gold price and exchange rates. The Company now does not expect the Rock Creek mine to generate significant net cash flow over the next six months using a gold price of US$750 per ounce and current exchange rates. As a result of expected further capital requirements and increased operating costs together with the uncertainty regarding the operation of the project and the resulting cash flow, the Company has decided to suspend operations at the Rock Creek mine. The cash flow from Rock Creek which the Company had intended to use to fund its ongoing obligations will therefore not be available. The regulatory consequences of a suspension are uncertain, however existing environmental requirements will continue to be met during this suspension. As part of its requirements under Canadian GAAP, the Company will be reviewing impairment testing for the project.

3) Note how the October 20th sale was Johnson's first in 2008. Why did it suddenly occur to him to start selling on this date, and sell a small lot of shares on every single trading day until the news of NG financial disaster was finally made public?

If this isn't illegal insider selling I really don't know what is. Those people who added to Novagold's coffers on the October 1st warrants expiration now know where at least some of their money went.

Thursday, November 27, 2008

For sure it'll be blamed on the weather. Today Argentina is experiencing power cuts, blackouts and brownouts all over the country, as its power supply system that has been woefully neglected by this scandalous government cannot keep up with the strain of a million air-conditioning systems turned to full. Buenos Aires hit 35c today, with a "thermal sensation" (one of the nicest direct translations I know) of 41c in the morning hours, but power cuts have been reported as far South as Ushuaia (and that's about as South as you can go on this planet without hitting icebergs).

"Please knock. No electricity" the sign on this doorbell at a house without supply for the last 40 hours.

The Minister of Interior Planning and Kirchner hard man Julio De Vido assured the country today that there was plenty of supply for all the country, quoting peaknumbers of 18.1KMW in demand spikes and a supply maximum of 21KMW, but did say there may be a few small problems. Hah! If there's 21KMW of potential supply in Argentina I'm Chinese.

And I'm not Chinese.

This is the country run by a President that inaugurates new power plants that pretend to be functioning. Only in Argentina could they have a press conference at a new power plant and play the sound of turbines whirring in the background on a stereo to make reporters think the generators were actually doing something. You think I'm joking? It happened on March 18th 2008 and here's the link.

Greg Johnson of Nadagold (NG) got rid of nearly half a million shares of the company he helped to sink recently (see filings below and linked here). Now note the difference between the 280k or so that were bailed in the 50c region and the other, slow drip sales he put in on the days leading up to last Monday's final admission of total corporate incompetance and failure.

Are you really telling me that he was forced into selling 10,000 shares, then 2k, then 5.6k, then 15k etc etc etc on a margin call when he had half a million pieces of this toilet paper on hand? Gimme a break, guys...this is criminal behaviour! Not only are you a blatant thief, Greg, but you're insulting your shareholders at the same time!

But the thing is, the ten filings listed below fromthe Canadian Insider website are only the tip of the iceberg. Greg Johnson started selling his shares on October 20th 2008 at $3.30 and managed to sell a total of $1.33m in shares between Oct 20th and Nov 20th. Johnson got rid of 524,381 shares in bite-sized chunks, never more than 65,000 at a time and typically between 5,000 and 20,000 in any one day. According to the Nadagold website, Johnson is old pals with fellow inside salesman, CEO Rick Van Nieuwenhuyse:

Greg S. Johnson, B.Sc.Vice President, Strategic DevelopmentGreg joined Rick Van Nieuwenhuyse to establish NovaGold in 1998. With over 20 years of industry experience, Greg is responsible for NovaGold's marketing and communication activities, and is involved in developing strategic growth opportunities. Prior to his role at NovaGold, Greg was part of the management team responsible for overseeing the exploration and acquisition activities for Placer Dome's International Exploration Group in Africa and Eurasia. Greg also worked with Rick Van Nieuwenhuyse and Joe Piekenbrock as part of the Alaska Exploration Group for Placer Dome in the late 1980s and early 1990s, where he played a key role in the multi-million-ounce Donlin Creek discovery in 1995. Greg has been involved in all aspects of exploration and development, from grassroots discoveries to Feasibility Studies in the United States, Canada, Australia, Russia and Africa. Greg holds an Honors B.Sc. in Geology from W. Washington University.

The OSC should be crawling all over this board of directors. Well, they would be in any serious country, but as the country in question is Canada and white-collar fraud is applauded rather than punished, expect the whusses at the OSC to do nothing and this crook and all the others who turned NG into mining's finest laughing stock since BRE-X to be waltzing around PDAC next spring, pressing flesh and doing new deals.

I find this chart enlightening on several levels and an excellent roadmap for trading the near future. Using GLD as a proxy for gold and SLV as a proxy for silver, we can clearly see that silver performed as a classic precious metal asset class for a long time. Then with the onset of crisis that notion was blown away, silver immediately stopped tracking gold and dropped with the industrial indices (I'm using the Dow as proxy, as it's not called the Dow Jones Industrial Average for nothing).

The crossover drop happened just before the big swoon in the broad markets at the end of September 2008. Was silver the canary in the coalmine? I don't know about that one, but 20/20 hindsight makes it an intruiging thought.

It also explains, without recourse to silverbug paranoia and all that tosh about the PTB manipulating every given moment of our financial life, just why silver dropped as hard as it did when it did. Put simply, the market has rejected the notion that silver is an asset class...for the time being, at least. I more than suspect that silver's behaviour has a lot to do with this previously published chart that demonstrates the big rise in modern silver production.

This in turn is due to the fact that a large portion of modern-day world silver production is as a by-product of other metals, notably zinc and lead (and no doubts that they're base metals).

So what does this tell us? In my view it tells us that we can throw out the gold:silver ratio for the time being, as silver and the miners that produce silver will perform as a direct function of the broad economy. Or in other words, silver is operating as a classic commodity. Stick the Ag price up on the kitco basemetals page and strike it from the main website page as of this moment.

Also, taken with the chart above that shows SLV compared to a cross-section basket of silver miners (PAAS, SSRI, FVI.v, FN.to and GPR.to), it's clear that the silver miners offer significant leverage to the metal going forward (having been punished more severely from late September onwards).

Bottom line: Rules to trade silver as of today:

1) Watch the dow and forget about the price of gold. Silver is not tracking gold, it is tracking the broad markets. Silverbugs won't like the idea of that, but since when have they been right about the market anyway?

2) If you feel there is significant upside in silver the metal, trade the silver stocks. They will give you more bang per buck, at least for the time being.

The final question to be asked is; "What would make silver 'cross back', leave the industrials behind and allow it to start tracking gold again?" That's something that is worth thinking about for the medium term, but I really feel we have enough on our plates trying to survive on a week-to-week basis for the time being. Any suggestions for an answer to this part of the riddle gratefully received.

It would be easy enough for the USA to demonize Russian President Medvedev's state visit to Venezuela, handily coinciding with the arrival of the battlecruiser Peter the Great for naval maneuvers with the Venezuelan navy this week (as featured on Venezuelan State TV every seven minutes or so) if it weren't for the thorny detail that Medvedev has also packed in official state visits to Peru and Brazil before arriving in Caracas.

Y'see, this is one of the most obvious consequences of the neglect and arrogance the USA has shown to South America in the Bush years; it's not that much different to the way kids act in the school playground with the law of "if you treat me badly I'm not going to be your friend anymore I'm going to find me another friend so there" applying....only a couple of steps more sophisticated.

It may be tough to swallow for many, but the Monroe Doctrine died out years ago and the attempts to try and resurrect the lord-it-over-em 'our backyard' attitude now meets with the well deserved middle finger of LatAm. So while the USA "watches with concern" as the influence of Russia grows in the region, remember that before effects come causes.

Wednesday, November 26, 2008

And so with a flourish of the pen, President of the United States of America George W. Bush suspends Bolivia's ATPDEA trade advantages and, according to those that know these things, puts around 25,000 people out of work in the urban sprawl of La Paz and El Alto. The suspension takes effect on December 15th, just in time for Christmas.

Look, it's his right to do this and Bolivia cannot impose its sovereign will over this. When the man says "No Soup For You", there's no arguing. But the USA just makes itself look stupid by denying it has anything to do with the expulsion of US Ambassador to Bolivia Philip Goldberg and insisting, as they did once again this afternoon, that it was all about the lack of effort in Bolivia's "war on drugs" (my how I hate that phrase). To put it in context, here's a link to an important report that hits times, dates, names and everything to prove that there was no great problem between Bolivia and the US DEA up to the moment that Goldberg was thrown out. Here's an excerpt from this very well-written report:

President Morales took office in January 2006. The Bush administration did not decertify the Morales government in September 2006, nor in September 2007. Nor was there any indication, prior to Ambassador Goldberg’s expulsion, that things would be different in September 2008. As recently as March 2008, the State Department noted in its annual International Narcotics Control Strategy Report (INSCR) that

“Bolivian and U.S. officials meet regularly to coordinate policy, implement programs/operations, and resolve issues.” Moreover, the March 2008 INCSR noted that in 2007 Bolivia had “surpassed its own coca eradication goal of 5,000 hectares”7 (one hectare equals 2.47 acres) and that “[a]ll seizure and interdiction statistics increased in comparison to 2006.”Even with regard to the Bolivian government’s policy of pursuing coca reduction through negotiated, voluntary eradication, the 2008 INCSR highlighted close cooperation:

“Despite challenges in transitioning to a new policy environment, bilateral cooperation in Integrated Alternative Development (IAD) remains strong. In the early part of 2007, the U.S. Mission, in consultation with Government of Bolivia counterparts, adjusted its IAD program to more strategically support the GOB’s net coca rationalization strategy and diversified development with declining budget resources.”

Another good link on this subject (and a little more accessible) is Jim Schultz's Blog from Bolivia's recent report here(it features the same WOLA report). But hey...we don't need no stinkin' facts.

Meanwhile, have a wild guess about the fate of those 25,000 soon-to-be unemployed workers in Bolivia. Let's play a quick round of "if it were me" and see if you can spot another basic problem with Dubya's grand plan. Question: If you were a Bolivian manual worker who had just been laid off from your job in a texiles factory and couldn't find any other employment would you:

b) Get on a bus and five hours later get off in the semi-tropical Yungas to tend a smallholding of coca plants that had been "donated" by a sponsor, the only condition being you sell him your harvest at the market rate. The job wouldn't take more than 6 hours of your day and the pay, although not great, would easily keep you and your family fed, clothed and watered.

Tough choice, huh? But hey.....you just KNOW that Bush's policies will cut cocaine production and help his godforsaken war. And you know it wasn't just tit-for-tat spite that has brought him to suspend the trade deal. And you know how loved the USA is in Latin America. Hearts'n'minds? Nah, leave that for the Russians..............

If you are a US citizen reading this post, I wish you a very Happy Thanksgiving.

UPDATE: Bolivian authorities today made two big smuggling busts, and both were strangely half a metric tonne in weight.

Say whaaaat? Well that title is really a line borrowed (ok..I admit it...stolen) from Mickey Fulp, the Mercenary Geologist(and while you're over there at his site, sign up for his 100% free subscription newsletter..it's required reading). Go have a looksee for yourself, but here's an example from today:

Great Panther Resources (GPR.to) published this PR, and it was impossible for a dude such as I not to click on a link with......

....as its title. "Wowsers!", thought Otto "they hit 95m of sixty ounce per tonne silver on a drill hole??? Wowsers and more wowsers!!" The true and veritable mother lode...El Dorado eat yer heart out...el Plateado has arrived!!" and all that nonsense.

So on reading the PR, what do we find? Yeah, disappointment. It turns out that those "95m" were a strike length of an undeveloped vein at the mine site. It also turns out that it might be 95m long but it's only an average of 31cm wide (and that doesn't light my fire, folks). But finally, it turns out that GPR.to is more talk than action, as "It is expected that production stopes will be prepared in this new area early in 2009..." Or to translate, you might get the first rock from the vein into the machine some time in April....or May.

Now all this comes on the back of another press release from GPR.to that went under that optimistic title "Great Panther Lowers Operating Cost To Keep Mines Profitable", a press release that could only fool those with zero knowledge of how a mine works. Have a look at the PR yourself, but basically the company is cutting cash operating costs from around $10/oz Ag to around $7.40/oz Ag (and don't confuse "cash operating cost" with total pre-tax deductions, my fair reader). Well that's fair enough, but the way they plan to do all that, namely concentrating on the high grade rock on site, severely limiting operating costs and deferring all capital costs, puts medium-term production in jeopardy.

I mean, what's the point in going through a whole feasibility study cycle to arrive at a sustainable plan for a mine at $X per ounce or per pound or per tonne costs, then suddenly throw out the plan and cut things way past the core just because the company is running out of cash? (hint...none at all) Because that's the bottom line here; despite what you might have heard on BNN from paid pundits pumping what they've been told to pump, GPR.to is woefully short of cash. So it resorts to whatever BS press release spin tactic it can to muster up a bit of interest from the retail mob. And that reminds me about why it is running out of cash. Because although that title implies that GPR.to is a profitable company, here's a chart of the quarterly net results since 1q07

Like I said, there's a big difference between covering cash costs and running a profitable miner. And all this reminds me why I like site sponsor Fortuna Silver (FVI.v), dudettes and dudes. Two simple points coming up:

1.Read this PR from Fortuna dated September 23rd, because it talks about the high grade silver vein they've just uncovered at their Caylloma mine in Peru. And then more importantly read this PR dated November 5th, because just six weeks after hitting serious grades of silver the ore is already being processed. No pussyfooting around...no big fanfare to the retail crowd and then a few months later do something about it. Just plain, boring good mining.

2. Fortuna has C$48m in cash and receivables, according to the latest quarterly. These people don't have to scrimp, save and put the future of their mine in jeopardy because they are not begging for money. There's no need to BS the market. They're sitting on a very tasty lump of cash and will see out this lean spell in metals prices even if it carries on through 2010. If the metal bear continues until then (greater powers forbid), stocks like GPR.to will either be a 1/10th of their current PPS or quite simply a distant memory. As well as all that cash FVI.v also has a much lower cash cost mining operation, but that's another story.

Because we're sticking to just one story today, and the moral of that story is: Don't believe the hype, be cynical, be sceptical. Read the filings. Look at the company numbers (and if you don't understand all of them you can even ask a pro to help) That way you avoid the retail traps and every now and again hit that undervalued pearl. Or in other words...

Scott of CAJA had a nasty experience last weekend, and here's the link to find out what happened. You'll also note he's not quick to blame leftist extremists or rightist extremists. Too wise for that, he's long since learned that a bullet fired by the FARC is just as deadly as a bullet fired by the paramilitaries.

In Molano's view, there are only two types of democracy in South America. You get the choice between

".....known for its political instability, Ecuador went through six presidents in a period of 10 years."

....and...

"...the PhD in economics (i.e. Correa) became the most powerful caudillo to govern the Andean nation since León Febres Cordero. Like his Bolivarian brothers, Correa is only interested in one thing—remaining in office for ever."

What a beautiful, binary world he lives in. Political instability is bad, but political stability is quasi-dictatorship. Fact is that the new Ecuador constitution (a document that Molano obviously hasn't bothered to read before revealing his ignorance in print) allows for a single re-election of its President. Just like....errrr...the USA.

As for his chosen subject this week, Ecuador is.....

"A third-rate producer of oil and bananas"

....which is strange, because according to the facts Ecuador is the world's biggest exporter of bananas and also a member of OPEC, the world's biggest influence on oil production. Or maybe I read him wrong and he just thinks the country is third rate? Molano even manages to pack in three factual errors in the first paragraph of his pathetic analysis when saying:

Ecuador is heading towards debt default, an end to dollarization, soaring inflation and economic decline.

An end to dollarization? Not according to Ecuador's FinMin last week. Viteri specifically said there was no end in sight for dollarization

Economic decline? Not according to Ecuador Central Bank and IMF forecasts. Check 'em yourself. I have.

Three blatant lies in the space of 15 words and the thing about inflation is subjective and dubious, too.

It's tough to believe that anyone takes this fool Molano seriously any more. The world's worst financial analysts are the ones that cloud their economic forecasts with their own personal political dogma and history has left their corpses scattered along its path. Go join the club, Molano. Your time is up. Jeeesh, what a dick...........

We last looked at this about four weeks ago just after it spiked to 6.0. Since then it's been quiet, with the bid revolving around 5.0 or so. However, the last two years have seen the parallel rate dropping in December, probably due to a whole bunch of locals liquidating savings in order to buy 18 year old single malt scotch.

So for all you loyal (?) readers in Caracas (mostly) and Maracaibo (yeah...you...you know I mean you), Otto humbly suggests spending a few of those dollars in your salary cheques on VEFs and stocking up supplies of local moolah as soon as possible.

Tuesday, November 25, 2008

A decision that should astound all readers of this blog. Tonight Reuters reports that the Minister of Foreign Relations, María Salvador, said the following in a radio interview (ottotrans):

"The audit report (about debt) found a series of problems of eventual responsibilities and illegalities that.....have to be submitted to competent authorities, internally to the General Fiscal (ottonote, the DA or gov't criminality body) and externally eventually to demands and court cases in other countries."

I want to be very clear and frank; Ecuador will never act outside its rights; we bind ourselves to the rule of law."

Tonight we celebrate our hero company Crystallex (KRY) and its eleven bottles of beer left on the waaaaall (well....11.8...who's counting?).

With apologies to FS for adapting (ok...stealing) his original idea (though used on a different theme). We join the scene as a Crystallex shareholder explains the benefit of an investment in his beloved stock to a normal person.

KRY shareholder: The numbers all go to eleven. Look, right across the board, eleven, eleven, eleven and...

Normal shareholder: Oh, I see. And most stocks go up to ten?

KRY shareholder: Exactly.

Normal shareholder: Does that mean it's better? Is it any more expensive?

KRY shareholder: Well, it's one better, isn't it? It's not ten. You see, most blokes, you know, will be trading at ten. You're on ten here, all the way up, all the way up, all the way up, you're on ten on your stocks.Where can you go from there? Where?

Normal shareholder: I don't know.

KRY shareholder: Nowhere. Exactly. What we do is, if we need that extra push over the cliff, you know what we do?

Normal shareholder: Put it up to eleven.

KRY shareholder: Eleven. Exactly. One bigger.

Normal shareholder: Why don't you just make ten bigger and make ten be the top number and make that a little better?